Intensity of competition and market structure in the Italian banking industry

Caterina Giannetti

No 2007041, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: The aim of this paper is to test the predictions of Sutton's model of independent submarkets for the Italian retail banking industry. This industry, in fact, can be viewed as made of a large number of local markets corresponding to different geographical locations. In order to do that, I first develop a model of endogenous mergers that shows how the number of firms is determined by the initial number of firms, by the intensity of competition, and by the degree of product differentiation, and how this in turn affects the one-firm concentration index. Then, in the second part, the number of banks in each submarket is estimated using a truncated model and a Poisson model. The size of the submarkets turned out to be at most provincial. Finally, the one-firm concentration ratio of each province is regressed on the number of banks, also in interaction with market size variables. As argued by Sutton for industries with exogenous sunk costs, a stronger and negative relationship is found as the market becomes larger.

Keywords: exogenous sunk costs; intensity of competition; concentration; truncated and Poisson models (search for similar items in EconPapers)
JEL-codes: C24 D43 L11 L89 (search for similar items in EconPapers)
Date: 2007-06-01
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Intensity of Competition and Market Structure in the Italian Banking Industry (2008)
Working Paper: Intensity of Competition and Market Structure in the Italian Banking Industry (2008)
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